Just downloaded the NFL Collective Bargaining Agreement ("CBA").  Here are the rules for the Practice Squad:

Article XXXIV of the CBA:  Teams may have eight practice squad players. A team cannot simply assign a fringe player to the practice squad. He must first be waived and go unclaimed by another club. The player then would become a free agent, not bound to sign a practice squad deal. 

Players must meet one of the following criteria while previously not being on a practice squad more than two seasons:  

1. No accrued seasons of NFL experience.
2. Free agents who were on an active roster for fewer than nine regular-season games during their accrued seasons.
3. A season on the practice squad constitutes three weeks. 
4. A practice squad player remains free to sign with any other club, but once signed must remain on the new team's 53-man roster unless cut.